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1)Prior to Enron, auditors cut costs by reducing the labor-intensive process of reviewing millions of transactions and hundreds of corporate accounts

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1)Prior to Enron, auditors cut costs by reducing the labor-intensive process of reviewing millions of transactions and hundreds of corporate accounts.

 

 

 

 

 

2. One of the two fieldwork stages of gathering audit evidence is the account balance-testing phase.

 

 

 

 

 

3. A detection risk is a risk that an account or transactions contain material misstatements before the effects of the controls.

 

 

 

 

4. A control risk is a risk that a material error in the balance or transaction class will not be prevented or detected.

 

 

 

 

 

5. Substantive auditing tests do not include analytical procedures.

 

 

 

6. The Treadway Commission in 1992 issued a report stressing the need for more forensic audit techniques.

 

 

 

7. SAS No. 84 was superceded by SAS No. 99.

 

 

 

8. Generally accepted audit standards are designed to catch most material fraud.

 

 

 

 

9. In Equity Funding at least 20 individuals colluded for nine years.

 

 

 

 

 

10. The Panel on Audit Effectiveness report made more than 200 forensic recommendations, most of which were included in SAS No. 99.

 

 

 

11. There is a gap between user expectations and the product that independent auditors deliver.

 

 

 

 

 

12. The audit profession has been very circumspect in defining its role in fraud detection.

 

 

 

 

 

13. The Panel on Audit Effectiveness report and recommendations suggested that auditors perform "forensic-type" procedures on every audit.

 

 

 

 

 

14. After SAS No. 99, there is no longer an expectation gap between the professional standards of the AICPA and the public's perception of the auditor's function.

 

 

15. One of the variables in the pyramid of external and internal fraud is means.

 

 

 

16. The Sarbanes-Oxley Act of 2002 created a new seven-member oversight group called the Public Company Accounting Oversight Board to regulate auditors of public companies.

 

 

 

17. The internal auditing profession maintains that they are not responsible for finding fraud on the job.

 

 

 

 

 

18. A leading internal auditing textbook says fraud is an unusual occurrence.

 

 

 

 

 

19. The COSO report said that the Chief Executive Officer was involved in approximately 72% of fraudulent financial reporting cases.

 

 

 

 

 

20. According to a leading internal auditing textbook, a fraud audit is common because fraud occurs often.

 

 

 

21. Sherron Watkins was the internal auditor for WorldCom.

 

 

 

22. Technical accounting knowledge is stressed in the Internal Auditor's Competency Framework for Internal Auditing.

 

 

 

23. An internal auditor director should report directly to the audit committee of the Board of Directors.

 

 

 

 

 

24. The Sarbanes-Oxley Act mandates that CEOs and CFOs must certify the appropriateness of financial statements and disclosures.

 

 

 

 

 

25. A CPA forensic investigator is required to follow both the Statement of Standards for Consulting Services and the Code of Professional Conduct.

 

 

 

 

 

26. Reactive auditing occurs when there are reasons to suspect that fraud may have occurred.

 

 

 

 

 

27. Proactive auditing occurs when there are reasons to suspect that fraud may have occurred.

 

28. Tests of controls may not be effective in detecting fraud, because management can override controls.

 

 

 

 

 

29. External auditors tend to audit proactively.

 

 

30. Enron robbed the bank, Arthur Andersen provided the get-away car, and David Duncan was at the wheel.

 

 

 

 

 

31. Pro forma financial statements refer to "as if" adjustments to financial information, moving them away from GAAP.

 

 

 

 

 

32. The trend in operating income is not as important as the trend in earnings.

 

 

33. The amount of stockholders or owners' equity should significantly exceed the amount of debt.

 

 

 

 

 

34. If accounts receivable exceed 15% of cost of goods sold and inventory exceeds 125% of annual sales, be careful.

 

 

 

35. Inventory, sales, and receivables should move in tandem.

 

 

 

 

 

36. The "big bath" refers to reversing reserves after a merger.

 

 

 

37. Reversing reserves is sometimes called "cookie jar" accounting.

 

 

 

 

 

38. Auditor switching and financial condition of a company are not correlated.

 

 

 

39. Enron had around 2,500 special purpose entities.

 

 

 

40. The resulting restatement of WorldCom books was more than six times that of Enron Corporation.

 

 

 

 

41. Tyco executive Dennis Kozlowski treated his company as a personal piggy bank.

 

 

 

 

 

42. Falling reserves for bad debts in relation to accounts receivable may falsely boost revenues.

 

 

 

 

 

43. Analytics can tell you where to go to audit and for what to search.

 

 

 

 

 

44. Ratio analysis is a subset of trend analysis that can be used to compare relationships among financial statements accounts over time to find the fakes.

 

 

 

 

 

45. Combining a restricted fund account in a government entity with the general fund would be an example of a "big bath."

 

 

 

46. A significant deficiency or material weakness that is ed before the balance sheet date does not need to be reported in the external auditor's report.

 

 

 

 

 

47. In SAS No. 99, brainstorming is now a required procedure to generate ideas about how fraud might be committed and concealed within an entity.

 

 

 

48. When using round-robin brainstorming, everyone in the room sits in a circle and shouts out ideas while someone writes them down.

 

 

 

49. The equity method is a technique used to hide debts or liabilities from the balance sheet.

 

 

 

50. An interview and an interrogation are the same thing.

 

 

 

51. Two-thirds of interviewees who cross their legs are lying.

 

 

 

 

52. A significant weakness is considered to be 1 out of 25 or 4 percent.

 

 

 

53. The public generally believes that external auditors should find fraud.

 

 

 

54. Undercover operations would be considered one of the seven investigative techniques available to forensic accountants.

 

 

55. Forensic accounting is based upon the materiality concept.

 

 

 

56. Analyzing fingerprints would be considered public document review.

 

 

 

57. Imaging a computer is considered to be laboratory analysis.

 

 

 

58. One of the three phases of fraud is the act itself.

 

 

 

59. Enron had a fake Bank of America bank account worth $4.83 billion.

 

 

 

60. The Available for Sale method is used to hide liabilities.

 

 

 

61. In a fraud, a victim suffers or the perpetrator achieves a gain.

 

 

 

 

62. Accountant David Friehling rubber-stamped Bernard Madoff books for 17 years.

 

 

 

63. Pursuing an insurance claim is a possible action when a company discovers a fraud.

 

 

 

64. Restatement of previously issued financial statements is an indicator of material weakness in internal control.

 

 

 

 

65. Auditing standard No. 5 indicates that auditors should use a bottom-up approach to determine the controls to test.

 

 

 

66. Control related to the control environment is an entry-level control.

 

 

 

67. Charles Manson said total paranoid is total awareness.

 

 

 

68. Older women are more likely to report fraudulent activities.

 

 

 

69. An employee complaining about inadequate pay is a behavioral red flag for possible fraud.

 

 

70. Control risk is:

 

 

 

71. Which is not one of the factors in SAS No. 99's pyramid of fraud?

 

 

 

72. Which statement is false?

 

 

 

 

73. Which statement is false?

 

 

 

74. Which statement is generally false?

 

 

 

75. Which statement is false regarding SAS No. 99?

 

 

 

76. An example of rationalization, an essential element of fraudulent activity (e.g., the fraud triangle), would be:

 

 

 

77. The collapse of Enron was caused by:

 

 

 

78. Which statement is false?

 

 

 

79. If an internal auditor finds fraud, what communication step should not be taken?

 

 

80. Which statement is false?

 

 

 

81. What best describes auditing that occurs when there are reasons to suspect that fraud may have occurred and appropriate audit steps are taken?

 

 

 

82. Which statement is false?

 

 

 

 

83. Which statement is generally false?

 

 

 

84. Which scheme does not inflate sales?

 

 

 

 

85. Which statement is false?

 

 

 

86. Which statement is false?

 

 

 

 

87. Which would not be considered an analytical procedure?

 

 

 

88. Given these facts, compute inventory turnover:
 

Total assets	$10,000,000
Cost of goods sold	2,200,000
Average inventory	1,300,000
Interest expense	850,000

 

 

 

 

89. Given these facts, calculate return on assets:
 

Sales	$8,200,000
Net income	3,050,000
Average total assets	7,100,000
Average total liabilities	3,500,000

 

 

 

 

90. Given these facts, calculate return on equity:
 

Sales	$8,200,000
Net income	2,050,000
Average total assets	7,100,000
Average total liabilities	3,500,000

 

 

 

                        

 

 

91. COSO lists which of the following as the most common financial statement fraud methods?

 

 

92. Which of the following is a type of brainstorming?

 

 

 

93. Which of the following ratios works well as a red flag for reporting problems and financial performance?

 

 

 

94. Which of the following is not a company involved in a recent fraud scandal?

 

 

95. A company using this method is not trying to hide liabilities.

 

 

 

96. Which company had a fake $4.83 billion Bank of America bank account?

 

 

 

97. Laboratory analysis would not include:

 

 

 

98. Which is not considered to be public document review?

 

 

 

99. What is considered more than a remote likelihood?

 

 

 

100. What is not considered one of the three phases of fraud?

 

 

 

101. Which is not a common opinion on the effectiveness of internal control over financial reporting?

 

 

 

102. Which statement is not true about a material weakness?

 

 

 

103. The most common account-specific material weakness occurs in which account?

 

 

 

104. The COSO model of control:

 

 

105. Monitoring controls do not include:

 

 

 

106. If a person commits a fraud against a governmental unit, knowing full well that such fraud may result in injury or loss of life (like selling police departments defective guns), what type of criminal intent would be involved?

 

 

 

107. Which level of criminal intent is most commonly required in prosecutions of white-collar crime?

 

 

 

108. A "debit" to assets in a double-entry accounting system has what effect?

 

 

 

109. Which is a false statement?

 

 

 

110. Which of the following organizational changes may have a significant impact on risks and controls?

 

 

111. According to the COSO model of control, each of the following is a component integrated with the management process except:

 

 

 

112. Implementing a code of ethics is a Sarbanes-Oxley requirement related to which component of the management process?

 

 

 

113. SAS No. 99 states that the auditor has the responsibility to plan and perform the audit to obtain reasonable assurance about whether financial statements are free of material misstatement, whether caused by error or fraud. SAS No. 99 also requires all of the following except:

 

 

 

114. Horizontal analysis typically involves what?

 

 

115. Which type of auditor opinion is probably the most common?

 

 

 

 

 

116. Once a fraud is discovered, what is probably not a likely action?

 

 

 

 

117. Which is not an entity-level control?

 

 

 

118. Which statement is false?

 

 

 

119. Which would not be a behavioral red flag?

 

 

 

1. Which would not be a common type of auditor’s opinion?
2. Which of these would not be possible signs that a person is lying?
3. Which technique would not be helpful to uncover improper revenue recognition?
4. SAS No. 99 prohibits clients from preparing and sending out confirmations.

 

5. Under AU Sec. 316, an auditor is required to perform tests of detail to address the risk of management override.

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6. The manipulator percentage for the Sales Growth Index is 30 percent and above.

 

7. The three phases of fraud would not include
8. The top behavioral red flag in the 2010 ACFE Report is financial difficulties.

 

9. For an interview the chairs should be at the same level (both individuals a same eye level).

 

10. A red flag of fraud would be a company making a significant write-off directly to earnings.

 

11. Which is not one of The three M’s of fraudulent financial reporting outlined in SAS No. 99?
12. An UpJohn warning is not necessary for a simple interview if an attorney is not interviewing the witness (but is present).

 

13. Who is responsible for internal controls?
14. Each of the three common types of fraud is more prevalent when there is a high variable component in the senior executive’s

 

15. Federal and State pension plan unfunded liabilities problems have improved significantly.
16. For liability and discoverability reasons, brainstorming should be written down and saved.

 

17. Many of the companies indicated by the SEC after Enron had one thing in common: CEOs were making about 75 percent above their peers.

 

18. The external auditors must obtain directly the principle evidence about the effectiveness of internal controls.

 

19. SAS No. 1 states that auditors must plan and perform an audit to obtain reasonable assurance that the financial statements are free of material misstatements caused by error or fraud.

 

20. Internal auditors need not analyze year-over-year changes in key metrics.

 

21. Which of these companies was not considered to be a personal piggy bank situation?
22. Which is not one of the surprise or unpredictable elements that the panel on Audit Effectiveness recommended?
23. External auditors, in general, do not audit proactively.

 

24. The pension Benefit Guarantee Corporation is privately created by publically funded.

 

25. There is more accounting fraud than bribery and corruption in the U.S.